California governor to get chance to "mark" climate law

LOS ANGELES (Reuters) - California Governor Jerry Brown could still make changes to the state's ambitious plan for a greenhouse gases market, the state's climate change regulator said, even as she battles a lawsuit that could delay the program's start next year.

The lawsuit, as well as complex technical issues and the distraction of a political fight over the state budget, are all obstacles for the most populous state to get its greenhouse gases market off the ground.

California is the last hope of U.S. environmentalists to revive a national climate change agenda. The state plans to set a limit on emissions and let factories and power plants trade rights to pollute. The hope is that the most efficient will profit from their knowledge and new industries will emerge.

If it succeeds, the plan known as cap-and-trade could spread to other states. Similar legislation failed in the U.S. Congress and many hope national leaders would reconsider if California does well.

A lawsuit by poor communities who fear cap-and-trade could worsen air quality in their part of the state is forcing regulators to consider other options. "We have to be open to the possibility that there could be other approaches," the state's top climate regulator, Air Resources Board Chair Mary Nichols, said at a conference late last week.

"And certainly the current governor deserves a chance, like the last one did, to put his mark on the program."

Previous Governor Arnold Schwarzenegger, for instance, instructed that a substantial number of pollution permits be given away instead of sold by the state.

Nichols plans to brief Governor Jerry Brown before a July board meeting to consider key details of the program.

The state lost the first round of the lawsuit but Nichols expects to win on appeal and said that Brown had not indicated "in the slightest" that he wanted to change cap-and-trade.

Still, "he hasn't had a chance to yet, because of the budget, to get fully briefed on the program, or to indicate, you know, whether he would like to see changes," she said at the Navigating the American Carbon World conference in Los Angeles, which was sponsored in part by Point Carbon. Thomson Reuters owns Point Carbon as well as Reuters News.

Brown's support of the state's broad climate change law was a hallmark of his campaign last year to be governor again, nearly three decades after a first two terms. But he focused on creating green jobs and did not dwell on the cap-and-trade greenhouse gas market, a contentious part of California's plan to cut emissions to 1990 levels by 2020.

"Where he stands is a big mystery," said Brent Newell, one of the lawyers for the Association of Irritated Residents suing the state over cap-and-trade. Brown has been an advocate of the poor, but he reappointed Nichols, a longtime colleague who is a driving force of cap-and-trade, Newell acknowledged.

Brown doesn't have much time to make up his mind -- Nichols aims to put finishing details on cap-and-trade soon. "I am not discussing any delay, I am not suggesting delay, I'm not announcing delay," she told reporters. She added in an interview, "As of this moment I have no reason to think we can't start the program in 2012." She declined to commit on a January 1 start, adding, "I'd rather not be pinned down to that."

Even a slight delay from the January 1 target could complicate matters. Michael Gibbs, Deputy Secretary for Climate Change at CalEPA argued that companies should be held accountable for a full year at a time, but that the state had some flexibility to delay auctions of credits.

"Because (emissions) reporting is annual, my personal opinion is that compliance should begin January 1 of a given year to match the reporting requirement," said Gibbs in an interview. But the first auction of credits to companies did not necessarily have to be mid-February, as planned. "Say it's March 14. Is that fatal?" he asked.

Many in the market do not think a delay would be fatal.

"If it slips we'd be something disappointed but we don't think it would be devastating," said Steve Corneli, senior vice president of sustainability, policy and strategy at merchant utility NRG Energy Inc, which has gas plants and renewable energy investments in California.